Fanhua Reports Third Quarter 2020 Unaudited Financial Results

Tuesday, 24. November 2020 22:45

GUANGZHOU, China, Nov. 24, 2020 (GLOBE NEWSWIRE) -- Fanhua Inc., (Nasdaq: FANH), (the “Company” or “Fanhua”), a leading independent financial services provider in China, today announced its unaudited financial results for the third quarter ended September 30, 20201.

Financial Highlights for the Third quarter of 2020:

(In thousands, except per ADS)2019Q3
RMB
2020Q3
(RMB)
2020Q3
(US$)
Change %
Total net revenues823,351812,003119,595(1.4)
Operating income151,44773,32610,800(51.6)
Non-GAAP operating income2111,62372,73610,713(34.8)
Net income attributable to
the Company’s shareholders
168,33275,32211,094(55.3)
Non-GAAP net income
attributable to the Company’s
shareholders3
128,50874,73211,007(41.8)
Diluted net income per ADS3.121.400.21(55.1)
Non-GAAP diluted net income
per ADS4
2.381.390.20(41.6)
Cash, cash equivalents and short-
term investments (As of
September 30, 2019 and 2020)
1,760,9661,700,472250,453(3.4)

Commenting on the third quarter results, Mr. Chunlin Wang, chairman and chief executive officer said, “In the third quarter of 2020, our life insurance gross written premiums achieved RMB2.4 billion, with a year-on-year increase of 15.5%, outpacing the industry growth rate of 9.2%. During the same period, first year premiums reached RMB582.7 million and annualized premiums equivalent5 were RMB333.5 million while renewal premiums exceeded RMB1.8 billion. The decline in new policies written is mainly attributable to the ongoing impact from the pandemic, the industry-wide downward pressure and slower recruitment in new agents, which partially offset the increase in renewal premiums.

“In recent years, we’ve seen a gradual transformation in the Chinese insurance industry, catalyzed by the sweeping impact of digital technology, a trend that has been further accelerated by the pandemic. In order to lead Fanhua into the post Covid-19 era, we have adopted a strategy of ‘a professional sales force, digital capability and open platform’. We believe that this strategy will enable Fanhua to strengthen its position as a market leader in the professional intermediary industry. The Company plans to upgrade its sales organization by selecting and developing high-caliber, productive and professional insurance advisor teams in economically developed cities in China. We also intend to build an integrated digital platform utilizing artificial intelligence, big data and cloud computing, enabling us to optimize the use of data to provide the most appropriate products for existing and potential customers and increase agent productivity. Finally, we will build an open platform to facilitate a closer cooperation with various third parties who can monetize their existing customer resources and to strengthen our value proposition to the market.

“While the immediate future remains challenging for the industry, we anticipate year-on-year growth in the first quarter next year and significant incremental contribution from the strategy to our results in the second half of 2021. We are confident in our ability to retain the Company’s position as a leader in the professional insurance intermediary sector over the long run.”

Financial Results for the Third quarter of 2020

Total net revenues were RMB812.0 million (US$119.6 million) for the third quarter of 2020, representing a decrease of 1.4% from RMB823.4 million for the corresponding period in 2019.

  • Net revenues for the life insurance business were RMB652.4 million (US$96.1 million) for the third quarter of 2020, representing a decrease of 6.3% from RMB696.0 million for the corresponding period in 2019. The decrease was mainly due to the 13.6% year-over-year decline in first year commission from RMB502.1 million in the third quarter of 2019 to RMB433.6 million in the third quarter of 2020, offset by 12.8% year-over-year growth in renewal commissions from RMB193.9 million in the third quarter of 2019 to RMB218.8 million in the third quarter of 2020 as a result of the accumulation of renewal business and high persistency ratio. Revenues generated from our life insurance business accounted for 80.3% of our total net revenues in the third quarter of 2020.
  • Net revenues for the P&C insurance business were RMB39.2 million (US$5.8 million) for the third quarter of 2020, representing an increase of 20.2% from RMB32.6 million for the corresponding period in 2019. Revenues for the P&C insurance business, mainly derived from commissions generated from Baowang (www.baoxian.com), increased primarily due to a higher proportion of higher-commission insurance products. Revenues generated from the P&C insurance business accounted for 4.8% of our total net revenues in the third quarter of 2020.
  • Net revenues for the claims adjusting business were RMB120.4 million (US$17.7 million) for the third quarter of 2020, representing an increase of 27.0% from RMB94.8 million for the corresponding period in 2019. The increase was mainly due to growth in our medical insurance-related claims adjusting business. Revenues generated from the claims adjusting business accounted for 14.9% of our total net revenues in the third quarter of 2020.

Total operating costs and expenses were RMB738.7 million (US$108.8 million) for the third quarter of 2020, representing an increase of 9.9% from RMB671.9 million for the corresponding period in 2019.

  • Commission costs were RMB541.4 million (US$79.7 million) for the third quarter of 2020, representing an increase of 2.0% from RMB530.8 million for the corresponding period in 2019.  
    • Costs of the life insurance business were RMB447.6 million (US$65.9 million) for the third quarter of 2020, representing a decrease of 0.3% from RMBB449.0 million for the corresponding period in 2019. The decrease reflects lower first year premiums. Costs incurred by the life insurance business accounted for 82.7% of our total commission costs in the third quarter of 2020.
    • Costs of the P&C insurance business were RMB24.9 million (US$3.7 million) for the third quarter of 2020, representing an increase of 10.2% from RMB22.6 million for the corresponding period in 2019, in line with our increased revenue and favorable product mix. The costs of the P&C insurance business mainly represent commission costs we incurred for operating Baowang (www.baoxian.com). Costs incurred by the P&C insurance business accounted for 4.6% of our total commission costs in the third quarter of 2020.
    • Costs of claims adjusting business were RMB68.9 million (US$10.1 million) for the third quarter of 2020, representing an increase of 16.6% from RMB59.1 million for the corresponding period in 2019, corresponding to the increase in the medical insurance-related claims adjusting business. Costs incurred by the claims adjusting business accounted for 12.7% of our total commission costs in the third quarter of 2020.
  • Selling expenses were RMB78.5 million (US$11.6 million) for the third quarter of 2020, representing an increase of 99.7% from RMB39.3 million for the corresponding period in 2019. Excluding the benefit of a fair value adjustment of RMB28.4 million which reflected the lower share-based compensation expenses related to the Company’s 521 Plan in the third quarter of 2019, adjusted selling expenses which excluded share-based compensation expenses in the third quarter of 2020 increased by 16.4% from RMB67.7 million for the corresponding period of 2019 to RMB78.9 million (US$11.6 million) due to increased sales events related to our claims adjusting segment.
  • General and administrative expenses were RMB118.9 million (US$17.5 million) for the third quarter of 2020, representing an increase of 16.8% from RMB101.8 million for the corresponding period in 2019. Excluding the benefit of a fair value adjustment of RMB11.4 million which reflected the lower share-based compensation expenses related to the Company’s 521 Plan in the third quarter of 2019, adjusted general and administrative expenses which excluded share-based compensation expenses in the third quarter of 2020 increased by 5.1% from RMB113.2 million in the corresponding period in 2019 to RMB119.0 million (US$17.5 million) due to an increase in operating lease expenses.

As a result of the preceding factors, we had an operating income of RMB73.3 million (US$10.8 million) for the third quarter of 2020, representing a decrease of 51.6% from RMB151.4 million for the corresponding period in 2019.

Non-GAAP operating income2, which excludes share-based compensation expenses, was RMB72.7 million (US$10.7 million) for the third quarter of 2020, representing a decrease of 34.8% from RMB111.6 million for the corresponding period in 2019.

Operating margin was 9.0% for the third quarter of 2020, compared to 18.4% for the corresponding period in 2019.

Non-GAAP operating margin6 was 9.0% for the third quarter of 2020, compared to 13.6% for the corresponding period in 2019.

Investment income was RMB12.9 million (US$1.9 million) for the third quarter of 2020, representing a decrease of 23.2% from RMB16.8 million for the corresponding period in 2019. The investment income in the third quarter of 2020 consisted of yields from short-term investments in financial products. Our investment income fluctuates from quarter to quarter because investment income is recognized when investments matured or disposed.

Interest income was RMB3.2 million (US$0.5 million) for the third quarter of 2020, representing an increase of 433.3% from RMB0.6 million for the corresponding period in 2019.

Income tax expense was RMB21.3 million (US$3.1 million) for the third quarter of 2020, representing a decrease of 29.5% from RMB30.2 million for the corresponding period in 2019. The effective tax rate for the third quarter of 2020 was 22.9% compared with 18.0% for the corresponding period in 2019.

Share of income of affiliates was RMB9.3 million (US$1.4 million) for the third quarter of 2020, representing a decrease of 71.5% from RMB32.6 million for the corresponding period in 2019, mainly attributable to the decrease in income from CNFinance Holdings Limited.

Net income was RMB80.8 million (US$11.9 million) for the third quarter of 2020, representing a decrease of 52.5% from RMB170.2 million for the corresponding period in 2019.

Net income attributable to the Company’s shareholders was RMB75.3 million (US$11.1 million) for the third quarter of 2020, representing a decrease of 55.3% from RMB168.3 million for the corresponding period in 2019.

Non-GAAP net income attributable to the Company’s shareholders3 was RMB74.7 million (US$11.0 million) for the third quarter of 2020, representing a decrease of 41.8% from RMB128.5 million for the corresponding period in 2019.

Net margin was 9.3% for the third quarter of 2020 as compared to 20.4% for the corresponding period in 2019.

Non-GAAP net margin7 was 9.2% for the third quarter of 2020, compared to 15.6% for the corresponding period in 2019.

Basic and diluted net income per ADS were RMB1.40 (US$0.21) and RMB1.40 (US$0.21) for the third quarter of 2020, respectively, representing decreases of 55.1% and 55.1% from RMB3.12 and RMB3.12 for the corresponding period in 2019.

Non-GAAP basic8 and diluted net income per ADS4 were RMB1.39 (US$0.20) and RMB1.39 (US$0.20) for the third quarter of 2020, respectively, representing decreases of 41.8% and 41.6% from RMB2.39 and RMB2.38 for the corresponding period in 2019.

As of September 30, 2020, the Company had RMB1,700.5 million (US$250.5 million) in cash, cash equivalents and short-term investments.

Key Operational Metrics for Fanhuas Online Initiatives in the Third Quarter of 2020:

  • Lan Zhanggui - Our one-stop insurance service platform:
    • The number of active users of Lan Zhanggui9 was 45,635 in the third quarter of 2020, as compared to 50,248 in the corresponding period of 2019. The number of active users of Lan Zhanggui who have sold at least one life insurance policy was 27,908 in the third quarter of 2020, as compared to 42,051 in the corresponding period of 2019;
    • Insurance premiums generated through Lan Zhanggui were RMB693.2 million (US$102.1 million) in the third quarter of 2020, among which life insurance premiums was RMB552.3 million (US$81.3 million) and non-life insurance premiums were RMB140.9 million (US$20.8 million), respectively, as compared to RMB684.4 million total insurance premiums generated through Lan Zhanggui which included RMB665.8 million life insurance premiums and RMB18.6 million non-life insurance premiums in the corresponding period of 2019.
  • eHuzhu - Our online mutual aid platform:
    • The number of paying members was 3.0 million as of September 30, 2020, as compared to 3.4 million as of September 30, 2019.
  • Baowang (www.baoxian.com) - Our direct-to-consumer (“DTC”) online insurance platform for Accident & Short Term Health insurance(A&H), travel and homeowner insurance:
    • The number of active customer accounts10 was 93,374 in the third quarter of 2020, representing a decrease of 41.0% from 158,275 in the corresponding period of 2019;
    • Insurance premiums generated on Baoxian.com was RMB81.7 million (US$12.0 million) in the third quarter of 2020 as compared to RMB86.6 million in the corresponding period of 2019.

Recent Developments

  • Given the impact of Covid-19 and the recent evolving dynamics of the insurance industry, the Company estimated that it is not probable that the participants can achieve the performance condition of the 521 Plan for 2020. Accordingly, the Company plans to terminate the 521 Plan. This will include returning the subscribed shares by the Participants to the Company, refunding the share rights deposits amounting RMB260.3 million received by the Company back to the Participants, and terminating the Participants' obligation to repay the Company the non-recourse loan principal and interest by the end of 2020. The returned shares will be cancelled subsequently.
  • On October 16, 2020, Fanhua Insurance Sales Service Group Company Limited was awarded the "Value Star of Insurance Intermediary Brand of the Year 2020" by Insurance Today, a prestigious online insurance trade media. The award was selected by a panel of experts and online and offline media, aiming at researching the industry from various dimensions of insurance companies, insurance intermediaries, insurance products and services and third-party technology support.
  • As of September 30, 2020, Fanhua had 424,510 sales agents and 1,615 professional claims adjusters, compared with 658,145 sales agents and 1,319 claims adjusters as of September 30, 2019. The number of performing agents11 in the third quarter of 2020 was 95,101, including approximately 28,135 selling life insurance products, , compared with 111,486 performing agents as of September 30, 2019, including 43,470 selling life insurance products. As of September 30, 2020, Fanhua’s distribution network consisted of 764 sales outlets in 22 provinces and 121 services outlets in 31 provinces, compared with 755 sales outlets in 22 provinces and 144 service outlets in 31 provinces as of September 30, 2019.

Business Outlook

Fanhua expects its operating income to be no less than RMB50 million for the fourth quarter of 2020. This forecast is based on the current market conditions and reflects Fanhua’s preliminary estimate, which is subject to change caused by various uncertainties, including those related to the COVID-19 pandemic.

Conference Call

The Company will host a conference call to discuss its third quarter 2020 financial results as per the following details.

Time: 8:00 PM Eastern Daylight Time on November 24, 2020
or 9:00 AM Beijing/Hong Kong Time on November 25, 2020

Due to the outbreak of COVID-19, operator-assisted conference calls are not available at the moment. Please pre-register online in advance to join the conference call by navigating to the link provided below and dial-in 10 minutes before the call is scheduled to begin. Conference call details will be provided upon registration.

Conference Call Preregistration: http://apac.directeventreg.com/registration/event/3674096

Additionally, a live and archived webcast of the conference call will be available at Fanhua’s investor relations website https://edge.media-server.com/mmc/p/2enqmuag

About Fanhua Inc.

Fanhua Inc. is a leading independent financial services provider. Through our online platforms and offline sales and service network, we offer a wide variety of financial products and services to individuals, including life and property and casualty insurance products. We also provide insurance claims adjusting services, such as damage assessments, surveys, authentications and loss estimations, as well as value-added services, such as emergency vehicle roadside assistance.

Our online platforms include: (1) Lan Zhanggui, an all-in-one platform which allows our agents to access and purchase a wide variety of insurance products, including life insurance, auto insurance, accident insurance, travel insurance and standard health insurance products from multiple insurance companies on their mobile devices; (2) Baowang (www.baoxian.com), an online entry portal for comparing and purchasing short term health, accident, travel and homeowner insurance products and (3) eHuzhu (www.ehuzhu.com), a non-profit online mutual aid platform in China.

As of September 30, 2020, our distribution and service network is consisted of 764 sales outlets in 22 provinces and 121 services outlets in 31 provinces.

For more information about Fanhua Inc., please visit http://ir.fanhuaholdings.com/.

Forward-looking Statements

This press release contains statements of a forward-looking nature. These statements, including the statements relating to the Company’s future financial and operating results, are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by terminology such as “will,” “expects,” “believes,” “anticipates,” “intends,” “estimates” and similar statements. Among other things, management's quotations and the Business Outlook section contain forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties and are based on current expectations, assumptions, estimates and projections about Fanhua and the industry. Potential risks and uncertainties include, but are not limited to, those relating to its ability to attract and retain productive agents, especially entrepreneurial agents, its ability to maintain existing and develop new business relationships with insurance companies, its ability to execute its growth strategy, its ability to adapt to the evolving regulatory environment in the Chinese insurance industry, its ability to compete effectively against its competitors, quarterly variations in its operating results caused by factors beyond its control and macroeconomic conditions in China, future development of COVID-19 outbreak and their potential impact on the sales of insurance products. All information provided in this press release is as of the date hereof, and Fanhua undertakes no obligation to update any forward-looking statements to reflect subsequent occurring events or circumstances, or changes in its expectations, except as may be required by law. Although Fanhua believes that the expectations expressed in these forward-looking statements are reasonable, it cannot assure you that its expectations will turn out to be correct, and investors are cautioned that actual results may differ materially from the anticipated results. Further information regarding risks and uncertainties faced by Fanhua is included in Fanhua's filings with the U.S. Securities and Exchange Commission, including its annual report on Form 20-F.

About Non- GAAP Financial Measures

In addition to the Company’s consolidated financial results under GAAP, the Company also provides adjusted selling expenses, adjusted general and administrative expenses, non-GAAP operating income, non-GAAP operating margin, non-GAAP net income attributable to the Company’s shareholders, non-GAAP net margin and non-GAAP basic and diluted net income per ADS, all of which are non-GAAP financial measures. Adjusted selling expenses are defined as selling expense before share-based compensation expenses related to shares owned by sales team leaders under the Company’s 521 Plan. Adjusted general and administrative expenses are defined as general and administrative expense before share-based compensation expenses related to shares owned by employees under the Company’s 521 Plan. Non-GAAP operating income is defined as operating income before share-based compensation expenses associated with the Company’s 521 Plan. Non-GAAP operating margin is defined as Non-GAAP operating income as a percentage of net revenue. Non-GAAP net income attributable to the Company’s shareholders is defined as net income attributable to the Company’s shareholders before share-based compensation expenses associated with the Company’s 521 Plan. Non-GAAP net margin is a non-GAAP measure that is defined as Non-GAAP net income attributable to the Company's shareholders as a percentage of net revenue. Non-GAAP basic net income per ADS is a non-GAAP measure and is defined as net income attributable to the Company’s shareholders before share-based compensation expenses associated with the Company’s 521 Plan divided by total weighted average number of ADS outstanding of the Company during the period. Non-GAAP diluted net income per ADS is a non-GAAP measure and is defined as net income attributable to the Company’s shareholders before share-based compensation expenses associated with the Company’s 521 Plan divided by total weighted average number of diluted ADS outstanding of the Company during the period. The Company believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing the Company’s performance and when planning and forecasting future periods. One limitation of using these non-GAAP financial measures is that such measures exclude items that were significant in the third quarter of 2019.

In light of these limitations, the presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. We encourage investors and other interested persons to review our financial information in its entirety and not rely on a single financial measure. For more information on these non-GAAP financial measures, please see the tables captioned “Reconciliations of GAAP Financial Measures to Non-GAAP Financial Measures” set forth at the end of this release.

 
FANHUA INC.
Unaudited Condensed Consolidated Balance Sheets
(In thousands)
 
 As of December 31, As of September 30, As of September 30,
 2019 202012 2020
 RMB RMB US$
ASSETS:     
Current assets:     
Cash and cash equivalents169,653 208,324 30,683
Restricted cash95,952 94,593 13,932
Short term investments1,612,351 1,492,148 219,770
Accounts receivable, net682,171 527,369 77,673
Insurance premium receivables5,067 530 78
Other receivables61,570 155,053 22,837
Other current assets54,987 42,584 6,272
Total current assets2,681,751  2,520,601 371,245
      
Non-current assets:     
      
Restricted bank deposit - non current 15,243 2,245
Property, plant, and equipment, net40,806 36,374 5,357
Goodwill and intangible assets, net110,191 109,932 16,191
Deferred tax assets7,327 10,217 1,505
Investment in affiliates363,414 364,146 53,633
Other non-current assets46,917 45,567 6,711
Right of use assets190,437 218,356 32,160
Total non-current assets759,092  799,835 117,802
Total assets3,440,843  3,320,436 489,047


Current liabilities:        
Accounts payable382,882  302,605  44,569 
Insurance premium payables7,901  32,454  4,780 
Other payables and accrued expenses220,290  189,931  27,974 
Accrued payroll101,664  90,873  13,385 
Income tax payable155,251  157,211  23,155 
Current operating lease liability79,986  88,933  13,098 
Total current liabilities947,974  862,007  126,961 
         
Non-current liabilities:        
Refundable share rights deposits266,901  260,299  38,338 
Other tax liabilities70,350  67,219  9,900 
Deferred tax liabilities7,898  21,991  3,239 
Non-current operating lease liability103,252  119,140  17,547 
Total non-current liabilities448,401  468,649  69,024 
Total liabilities1,396,375   1,330,656  195,985 
         
         
Ordinary shares9,235  9,235  1,360 
Treasury stock(1,146) (1,146) (169)
Additional paid-in capital393     
Statutory reserves508,739  508,739  74,929 
Retained earnings1,479,494  1,391,705  204,976 
Accumulated other comprehensive loss(65,429) (40,262) (5,930)
Total shareholders’ equity1,931,286   1,868,271  275,166 
Non-controlling interests113,182  121,509  17,896 
Total equity2,044,468   1,989,780  293,062 
Total liabilities and equity3,440,843   3,320,436  489,047 
         


FANHUA INC.
 
Unaudited Condensed Consolidated Statements of Income and Comprehensive Income
(In thousands, except for shares and per share data)
 
  For the Three Months Ended
 For the Nine Months Ended
     
  September 30,
 September 30,
  2019 2020 2020 2019 2020 2020
  RMB
 RMB
 US$
 RMB
 RMB
 US$
Net revenues:                  
Agency 728,524  691,593  101,861  2,439,188  2,107,511  310,403 
Life insurance business 695,968   652,370  96,084  2,326,746   2,006,030  295,456 
P&C insurance business 32,556   39,223  5,777  112,442   101,481  14,947 
Claims adjusting 94,827  120,410  17,734  254,236  308,660  45,461 
Total net revenues 823,351   812,003  119,595  2,693,424   2,416,171  355,864 
Operating costs and expenses:                  
Agency (471,668) (472,512) (69,593) (1,639,456) (1,452,077) (213,867)
Life insurance Business (449,020) (447,634) (65,929) (1,564,815) (1,381,898) (203,531)
P&C insurance Business (22,648) (24,878) (3,664) (74,641) (70,179) (10,336)
Claims adjusting (59,102) (68,851) (10,141) (150,461) (179,917) (26,499)
Total operating costs (530,770) (541,363) (79,734) (1,789,917) (1,631,994) (240,366)
Selling expenses (39,309) (78,460) (11,556) (200,988) (209,859) (30,909)
General and administrative expenses (101,825) (118,854) (17,505) (347,286) (344,006) (50,667)
Total operating costs and expenses (671,904) (738,677) (108,795) (2,338,191) (2,185,859) (321,942)
Income from operations 151,447   73,326  10,800  355,233    230,312   33,922 
Other income, net:                  
Investment income 16,761  12,910  1,901  69,684  27,039  3,982 
Interest income 620  3,196  471  2,590  11,140  1,641 
Others, net (1,028) 3,359  494  10,866  28,747  4,234 
Income from operations before                   
income taxes and share income of
affiliates
 167,800   92,791  13,666  438,373    297,238   43,779 
Income tax expense (30,241) (21,286) (3,135) (109,969) (69,910) (10,297)
Share of income of affiliates 32,596  9,279  1,367  86,839  1,427  210 
Net income 170,155   80,784  11,898  415,243   228,755  33,692 
Less: net income attributable to noncontrolling interests 1,823  5,462  804  1,634  8,327  1,226 
Net income attributable to the                  
Company’s shareholders 168,332   75,322  11,094  413,609   220,428  32,466 
                   


FANHUA INC.
Unaudited Condensed Consolidated Statements of Income and Comprehensive Income-(Continued)
(In thousands, except for shares and per share data)
 
  For the Three Months Ended
 For the Nine Months Ended
  September 30,
 September 30,
  2019  2020
 2020
 2019  2020
 2020
  RMB  RMB
 US$
 RMB  RMB
 US$
Net income per share:                  
Basic 0.16  0.07  0.01  0.38  0.21  0.03 
Diluted 0.16  0.07  0.01  0.38  0.21  0.03 
                   
Net income per ADS:                  
Basic 3.12  1.40  0.21  7.53  4.11  0.60 
Diluted 3.12  1.40  0.21  7.52  4.10  0.60 
                   
Shares used in calculating net income per share:                  
                   
Basic 1,077,381,239  1,073,891,784  1,073,891,784  1,098,906,389  1,073,891,784  1,073,891,784 
Diluted 1,077,780,976  1,074,291,392  1,074,291,392  1,099,443,163  1,074,291,409  1,074,291,409 
                   
Net income 170,155   80,784  11,898  415,243   228,755  33,692 
Other comprehensive income, net                   
of tax: Foreign currency
translation adjustments
 2,631  6,302  928  6,021  10,159  1,496 
Share of other comprehensive                   
gain of affiliates 1,147  (1,553) (229) 1,270  (694) (102)
Unrealized net gains on                  
available-for-sale investments 3,964  3,917  577  3,964  15,702  2,313 
Comprehensive income 177,897   89,450  13,174  426,498   253,922  37,399 
Less: Comprehensive income                  
attributable to the
noncontrolling interests
 1,823  5,462  804  1,634  8,327  1,226 
Comprehensive income                  
attributable to the Company’s
shareholders
 176,074   83,988  12,370  424,864   245,595  36,173 
                   


FANHUA INC.
Unaudited Condensed Consolidated Statements of Cash Flow
(In thousands, except for shares and per share data)
 
 For the Three Months Ended
 For the Nine Months Ended
 September 30,
 September 30,
 2019
 2020
 2020
 2019
 2020
 2020
 RMB
 RMB
 US$
 RMB
 RMB
 US$
OPERATING ACTIVITIES                 
Net income170,155   80,784  11,898  415,243   228,755  33,692 
Adjustments to reconcile net                 
income to net cash generated
from operating activities:
                 
Investment income(11,298) (8,030) (1,183) (56,655) (13,132) (1,934)
Share of income of affiliates(32,596) (9,279) (1,367) (86,839) (1,427) (210)
Other non-cash adjustments859  31,153  4,587  97,946  102,090  15,035 
Changes in operating assets and liabilities:993  32,625  4,806  (316,084) (14,465) (2,128)
Net cash generated from                 
operating activities128,113   127,253    18,741   53,611   301,821    44,455  
Purchase of short term investments(2,780,221) (2,326,840) (342,706) (5,948,901) (6,934,962) (1,021,410)
Proceeds from disposal of short term investments2,460,289  1,827,416  269,149  5,962,606  7,078,630  1,042,570 
Cash paid for loan receivables to a third party        (90,000) (13,256)
Others1,512  (3,832) (564) (7,050) (9,575) (1,410)
Net cash (used in) generated from                 
investing activities(318,420)  (503,256)  (74,121) 6,655   44,093    6,494  
Dividends paid(115,078) (91,865) (13,530) (321,820) (300,695) (44,288)
Repurchase of shares from open market(154,325)     (484,016)    
Others(3,790)     126,982     
Net cash used in financing activities(273,193)  (91,865)  (13,530) (678,854)  (300,695)  (44,288)
Net (decrease) increase in cash,                  
cash equivalents and
restricted cash
(463,500)  (467,868)  (68,910) (618,588)  45,219    6,661  
Cash, cash equivalents and                 
restricted cash at beginning
of period
702,064   786,737    115,874   848,166   265,605    39,119  
Effect of exchange rate changes                 
on cash and cash equivalents13,469  (709) (104) 22,455  7,336  1,080 
Cash, cash equivalents and                 
restricted cash at end of period252,033   318,160    46,860   252,033   318,160    46,860  
                  


FANHUA INC.
Reconciliations of GAAP Financial Measures to Non-GAAP Financial Measures
(In RMB in thousands, except shares and per share data)
 
 For the Three Months Ended September 30
 2019 2020  
 GAAP

 Share-based
compensation
expenses
 Non-GAAP

 GAAP

 Share-based
compensation
expenses
 Non-GAAP

 Change%
 
Net revenues823,351    823,351   812,003     812,003   (1.4)
Selling expenses(39,309) 28,446 (67,755) (78,460) 421 (78,881) 16.4 
General and
administrative
expenses
(101,825) 11,378 (113,203) (118,854) 169 (119,023) 5.1 
Income from operations151,447   39,824  111,623   73,326   590  72,736   (34.8)
Operating margin18.4%  13.6% 9%  9% (33.8)
Net income attributable
to the Company’s
shareholders
168,332   39,824  128,508  75,322  590   74,732  (41.8)
Net margin20.4%  15.6% 9.3%  9.2% (41.0)
Net income per share:                  
Basic0.16   0.12  0.07   0.07  (41.7)
Diluted0.16   0.12  0.07   0.07  (41.7)
Net income per ADS:                  
Basic3.12   2.39  1.40   1.39  (41.8)
Diluted3.12   2.38  1.40   1.39  (41.6)
Shares used
in calculating net
income per share:
                  
Basic1,077,381,239   1,077,381,239  1,073,891,784   1,073,891,784   
Diluted1,077,780,976   1,077,780,976  1,074,291,392   1,074,291,392   
                   


 For the Nine Months Ended September 30
 2019  2020
  
 GAAP
 Share-based
compensation
expenses

 Non-GAAP
 GAAP
 Share-based
compensation
expenses
 Non-GAAP
 Change%
Net revenues2,693,424     2,693,424   2,416,171    2,416,171   (10.3)
Selling expenses(200,988) (2,486) (198,502) (209,859) 281 (210,140) 5.9 
General and
administrative
expenses
(347,286) (994) (346,292) (344,006) 113 (344,119) (0.6)
Income from operations355,233   (3,480) 358,713   230,312  394  229,918   (35.9)
Operating margin13.2%   13.3% 9.5%  9.5% (28.6)
Net income attributable
to the Company’s
shareholders
413,609   (3,480) 417,089    220,428  394  220,034  (47.2)
Net margin15.4%   15.5% 9.1%  9.1% (41.3)
Net income per share:                   
Basic0.38    0.38  0.21   0.20  (47.4)
Diluted0.38    0.38  0.21   0.20  (47.4)
Net income per ADS:                 
Basic7.53    7.59  4.11   4.10  (46.0)
Diluted7.52    7.59  4.10   4.10  (46.0)
Shares used
in calculating net
income per share:
                   
Basic1,098,906,389    1,098,906,389  1,073,891,784   1,073,891,784   
Diluted1,099,443,163    1,099,443,163  1,074,291,409   1,074,291,409   
                    

Source: Fanhua Inc.

_________________________________

1  This announcement contains currency conversions of certain Renminbi (RMB) amounts into U.S. dollars (US$) at specified rates solely for the convenience of the reader. Unless otherwise noted, all translations from RMB to U.S. dollars are made at a rate of RMB6.7896 to US$1.00, the effective noon buying rate as of September 30, 2020 in The City of New York for cable transfers of RMB as set forth in the H.10 weekly statistical release of the Federal Reserve Board.

2  Non-GAAP operating income is defined as operating income before share-based compensation expenses.

3  Non-GAAP net income attributable to the Company’s shareholders is defined as net income attributable to the Company’s shareholders before share-based compensation expenses.

 Non-GAAP diluted net income per ADS is defined as net income attributable to the Company’s shareholders before share-based compensation expenses divided by total weighted average number of diluted ADS outstanding of the Company during the period.

 Annualized premiums equivalent is a measure used by the Company to compare annual premiums received from life insurance policies with differing tenures by normalizing annual premiums into the equivalent annual premium of a policy with a tenure of 20 years.

6   Non-GAAP operating margin is defined as Non-GAAP operating income as a percentage of net revenue.

7   Non-GAAP net margin is defined as non-GAAP net income attributable to shareholders as a percentage of net revenue.

8   Non-GAAP basic net income per ADS is defined as non-GAAP net income attributable to the Company’s shareholders divided by total weighted average number of ADS outstanding of the Company during the period.

9   Active users of Lan Zhanggui included users who sold at least one insurance policy through Lan Zhanggui (through either its mobile application or WeChat public account) during the specific period.

10 Active customer accounts are defined as customer accounts that made at least one purchase directly through www.baoxian.com, its mobile application, or WeChat public account during the specified period.

11 Performing agents are defined as agents who have sold at least one insurance policy during the specified period.

12 In September 2016, FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. This standard requires entities to measure all expected credit losses of financial assets held at a reporting date based on historical experience, current conditions, and reasonable and supportable forecasts in order to record credit losses in a timelier manner. ASU 2016-13 also amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 adds to U.S. GAAP an impairment model (known as the current expected credit loss (CECL) model) that is based on expected losses rather than incurred losses. The Company adopted the ASU No. 2016-13 on a modified-retrospective basis, the cumulative-effect adjustment reduce opening retained earnings balance by approximately RMB7.5 million in the statement of financial position as of January 1, 2020.


For more information, please contact:

Investor Relations
Tel: +86 (20) 8388-3191
Email: qiusr@fanhuaholdings.com

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